What the future of the auto industry will look like
Surging demand for cars in rapidly growing nations will mean a robust car industry in 20 years. The US will have a piece of it – though smaller than today – and the models it turns out will be much greener as the iconic industry reinvents itself.
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Given the number of people in the developing world who can now afford a basic auto, or will soon be able to, the global vehicle industry may not yet have seen its period of greatest growth. “The motor vehicle manufacturing industry, which is 100 years old, is only now emerging from its infancy,” conclude Ronald Haddock and John Jullens, analysts at Booz & Company, in a recent report.
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Once a nation’s gross domestic product reaches $10,000 per capita, its rate of automobile ownership accelerates, according to Booz & Company data. Among those countries that have not yet reached that point, but will soon, are Russia, India, China, Malaysia, Indonesia, and Iran.
The bottom line: Even given the recession, world auto sales could total 715 million units over the next nine years. And the most important attribute a car can have in this new global market may not be electric drive or plug-in technology, but low expense. When a farmer from rural China goes looking to upgrade from his motorbike, the first thing he’ll look for is something he can afford.
That is why the Tata Nano is such a big deal. It is the world’s cheapest production car, with a price tag of about $2,500. No, its trunk does not open. (Access is from the inside.) Engineers shaved costs by attaching wheels with three lug nuts, instead of four. It looks like a beanbag chair, or possibly a large kitchen appliance. But when its Indian manufacturer, Tata Motors, began taking orders for the car this spring, it sold 200,000 in 16 days.
Demand for low-priced vehicles around the world soon will be huge, says Hiroshi Hasegawa, president of SC-ABeam Automotive Consulting in Tokyo. And that business may not go to Buick or Volkswagen or Toyota. Even in Japan, young adults now covet cellphones as status items but see cars as simply a way to get around. “I would expect Chinese and Indian low-priced cars to meet such demand,” says Mr. Hasegawa.
In the 1970s, Japanese automakers invaded the US and Western Europe with efficient small cars, tapping a market the locals did not know existed. Now, those same manufacturers may be planning for a different kind of global competition, in which many more firms than before take part. “We expect to move into a multipolar age,” says Hasegawa.
And what part of this market do the Japanese want to predominate in? Yep – hybrids and other electric-drive vehicles. Toyota and Honda beat US firms to the marketplace with hybrids, and they are not eager to cede that ground to anyone – even an eager upstart like Bright Automotive, with its friendly 100-mile-per-gallon van.
Toyota expects that by 2020, hybrids will account for more than 20 percent of its annual sales volume.
“Japanese carmakers acquired technologies and production know-how on [hybrids and electric vehicles] a long time ago,” says Koji Endo, an auto analyst with Credit Suisse in Tokyo. “They will continue to improve their techniques while cutting costs in the next five years.”
Takehiko Kambayashi contributed from Tokyo.
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